Insurance Committee Announcement concerning Consultation by European Commission

As many of you are probably aware, the European Commission has launched, on 11 October 2019, a Public Consultation on the Implementation of the final Basel III reforms in the EU.

You can access the document for the consultation under the following link: https://ec.europa.eu/info/law/better-regulation/initiatives/finance-2019-basel-3/public-consultation_en.

ITFA will in the interest of its members and in line with the advocacy work we are doing (and which was presented to you during our Annual Conference in September) respond to the consultation. We will, as explained, focus on the negative spill-over effects the reforms have on the cooperation between banks and insurance companies and namely the very high LGD that banks will have to apply when obtaining risk coverage from a private risk insurer. We will therefore concentrate our response to the questions detailed in the below scope.

We would like to invite you to send your comments to info@itfa.org so that we can take your interests, comments and preferences into consideration. If you are of the opinion that additional questions should be answered, please let us know as well. For your easy reference, we have summarized below the most important points about ITFA’s approach to the consultation:

Rationale

We understand that the Commission is not fully happy with the EBA’s technical advice on the implementation of the Basel III reforms in the EU, which is solely based on a prudential perspective. The consultation will therefore help the Commission analysing the specificities of the European banking sector, keeping also in mind banks’ role in financing the economy. This is a great opportunity for ITFA to outline the concerns of its members.

Scope

As mentioned above, ITFA considers to focus its response on the following questions, which most impact the insurance-bank cooperation:

1.2 Internal Ratings Based Approaches (IRBA)

Question 62 (page 21): What are your views on the costs and benefits of reducing the scope of internal modelling as described above? In particular, how would this reform impact the robustness and levels of RWAs for the affected portfolios? Please provide relevant evidence to substantiate your views.

Question 73 (page 23): Views are sought on the costs and benefits of the revised regulatory LGD values to be used under the FIRB Approach. In particular, how does the approach provided by the Basel III standards compare with the Basel II standards in terms of risk-sensitivity, impact on RWAs and operational burden? Please provide relevant evidence to substantiate your views.

1.4 Credit Risk Mitigation – IRBA

Question 105 (page 29): What are the costs and benefits of the revised treatment of AIRB exposures secured by SA-CR or FIRB guarantors? Please compare the approach under Basel III in terms of risk-sensitivity, comparability, impact on RWAs and operational burden with the current CRR treatment. Please provide relevant evidence to substantiate your views.

Additional questions:

Question 107 (page 30): What are the costs and benefits of the revised treatment of UFC under the substitution approach? Please compare the approach under Basel III in terms of risk-sensitivity, comparability, impact on RWAs and operational burden with the current CRR treatment. Please provide relevant evidence to substantiate your views.

Question 109 (page 30): In your view, which other aspects, if any, should be considered in the context of revising the CRM framework under the IRBA? Please specify and rank your answers from the most important to the least important aspect.

Content

The consultation contains 210 questions on specific topics such as credit risk (section 1, pages 6 – 30), operational risk, market risk, credit valuation adjustment risk, output floor. Credit insurance is not specifically mentioned, but the consultation does refer to CRM and Unfunded Credit Protection.

Timeline

The consultation is open until the 3^rd of January 2020. Nonetheless, we understand that the Commission is already working on its own assessment. It is therefore critical that ITFA submits its response as early as possible to increase the chances of the response being considered by the Commission.

We would appreciate if you could submit your comments / suggestions by 10^th November so that the insurance committee can discuss them during their meeting at the occasion of the public hearing. 

Public hearing on 12 November

The Commission will hold a Public Hearing on the 12^th November in Brussels which ITFA will attend.